NCPA - National Center for Policy Analysis

Economy not to Blame for States' Budget Woes

June 23, 2003

The financial problems racking many state governments this year have less to do with the weak national economy than with the ability of governors and legislators to manage money wisely, according to a USA Today analysis of how the 50 states spend, tax and balance their budgets -- or don't.

Utah, Georgia and Delaware are the best financial stewards, according to the analysis of the states' financial performance:

  • The key to their success: restraint -- during the economic boom of the late 1990s, these states limited both spending growth and tax cuts.
  • After the economy weakened in early 2001, they acted swiftly and decisively to keep their finances sound.

California, the worst-performing state in the analysis, did the opposite:

  • It approved huge spending increases and tax cuts during the boom.
  • When the economy soured, the state began borrowing money and using accounting gimmicks to avoid its day of reckoning.
  • Today, it continues to spend $1 billion a month more than it takes in.

To make ends meet, some states have removed thousands of low-income adults from Medicaid and reduced benefits for others. Many states have raised college tuition, cigarette taxes and other narrowly targeted fees. Six states have increased sales and income tax rates, and several more may do so this week.

But one thing has remained constant throughout the crisis: State spending keeps growing.

It went up 6.3 percent for the fiscal year that ended June 30, 2002, and it's on track to rise about 5 percent in the 12 months that end June 30.

Source: Dennis Cauchon, "Bad moves, not economy behind busted state budgets," USA Today, June 23, 2003.

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